OSC 2009 Corporate Finance Report highlights staff views on M&A issues raised in 2009
The OSC has just released its 2009 Corporate Finance Branch Report, summarizing the operational activities of the Branch for fiscal 2009, which ended on March 31, 2009. The report highlights the Branch’s activities in the area of mergers and acquisitions, specifically relating to OSC staff views on negative bid variations and bid withdrawals, significant M&A related decisions and use of the financial hardship exemption under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). The report also summarizes the Branch’s activities relating prospectus and rights offerings as well as continuous disclosure reviews and continuous disclosure issues relating to market conditions and transition to international financial reporting standards (IFRS).
Mergers and Acquisitions
According to OSC staff, actions such as a bidder amending a bid in its discretion to make it less favourable or unilaterally withdrawing a bid prior to its expiry may be regarded as “inconsistent with the take-over bid regime” and its “underlying purpose to provide a transparent and predictable framework for take-over bids.” As such, staff intend to monitor such actions by bidders to determine whether the bidder has failed to comply with securities legislation or otherwise acted in a manner contrary to the public interest. Such reviews will focus, in particular, on whether the bidder's actions were based on a reasonable interpretation of bona fide conditions in its offer.
In its review of relevant OSC decisions, the report highlights Re Hudbay Minerals Inc. and InterRent Real Estate Investment Trust, both decisions where the OSC was asked to review a TSX decision that approved the issuance of shares without shareholder approval. Upholding the decision of the TSX in InterRent REIT, the OSC dismissed the application on the basis that, among other things, the OSC had sufficient basis upon which to defer to the TSX and the TSX decision was reasonable under the circumstances. In contrast, the OSC concluded in Hudbay that permitting the share issuance to proceed without shareholder approval would adversely affect the quality of the marketplace and be contrary to the public interest. In reaching its conclusion in Hudbay, the OSC noted that the TSX had not provided sufficient analysis to support its decision not to exercise its discretion to require approval on that matter, thereby permitting the OSC to make its own determination.
The report also summarizes the OSC’s decision in Re JLL Patheon Holdings LLC relating to identical treatment in take-over bids and second step business combinations and its decision to dismiss an application to cease trade the shareholder rights plan of Pala Investment Holdings Limited.
The report also comments on relevant considerations for relying on the financial hardship exemption from minority approval and valuation requirements for related-party transactions under MI 61-101. Staff state that, owing to the similarities among the considerations underlying the MI 61-101 exemption and considerations set out by the TSX in its Staff Notice dated April 27, 2009 (relating to the exemption from shareholder approval under subsection 604(e) of the TSX Company Manual), the considerations set out in the TSX’s Staff Notice may be relevant for an issuer proposing to rely on the financial hardship exemption in MI 61-101.
